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Retirement savings: How much can you delegate?

By Dave Burdick, The Denver Post

Posted:
07/15/2013 09:43:17 AM CDT

Updated:
07/15/2013 10:00:32 AM CDT

The Web is rife with ads enticing you to click by promising to divulge "one weird trick" to, say, lose weight. We consumers must like the idea of "weird tricks." So where are the weird tricks for retirement savings?

Facing a country that isn't great at saving for retirement, Congress tried one weird trick in 2006 — it made it easier for companies to automatically enroll employees in 401(k) savings plans. In an auto-enroll, you're signed up and contributing to your very own 401(k) plan from the moment you're hired. Saving for retirement becomes opt out, rather than opt in.

Vanguard Group Inc., released research last month indicating that while eligible employees' participation in 401(k) savings plans inched up from 68 percent to 73 percent after just one year, it hasn't increased appreciably since. Not bad for one weird trick, but if that's all we get for being entirely passive, maybe it's time to get a little more involved. Presenting two easy, incremental ways to do just that:

Stay on target

One increasingly popular investment is the target-date fund. This is the type of fund that is made up of a variety of investments determined by the year in which you want to retire. If you're very close to retirement, the mix will be mostly conservative investments; if retirement is a long way off, you'll be invested more aggressively.

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They typically have a target retirement date in the name and typically are broken up into five-year increments. Target Retirement 2040, for example, would assume that you're going to retire around 2040. If you're actually thinking 2043, 30 years from now, you can choose the 2040 option or the 2045 option, depending on whether you'd like to be slightly more aggressive or slightly more conservative.

Target-date funds are relatively new; Barclays Global Investors claims the first selection was its LifePath Portfolios, only 20 years ago. The Investment Company Institute reports that in 1995, $487 million dollars were invested in target-date funds, and that in 2011, that figure was nearly $380 billion.

One reason for their popularity: Somebody else is doing the thinking and reallocating for you, based on when you're hoping to retire.

"That delegates not only which funds to pick but the actual movement of the allocation," says Englewood-based certified financial planner David Estabrook. "You're saying, 'I'm not going to go back in.' It's a great way for the person that is never going to look at it until they retire."

Use your energy wisely

"We actually believe in target-date funds — get your head out of investing," says Steven Sass, program director of Boston College's Center for Retirement Research.

For some of us, that sounds pretty easy. In fact, many of us are already really good at that. Time for cocktails on the patio?

Not quite.

His argument is not to ignore investing entirely when it comes to retirement savings, but rather to dethrone investing as the most-discussed part of being prepared for retirement. His organization emphasizes the ability to save early and consistently.

"Most people are going to have some mix of stocks and bonds," he says, "and whether it's optimal allocation or not, it's not going to have as much of an effect as how much they save."

The time that might have been lost researching individual stocks might be better spent brainstorming ways to pinch pennies at home. If you can reduce your monthly expenditures by even 1 percent, you can increase your contribution to your savings. If you're currently at zero percent, consider trying to contribute whatever your employer will match — if anything — or fake an automatic enrollment for yourself, start at 3 percent and crank it up by 1 percent each year.